Monday, January 16, 2012

Where are the jobs going to come from? TMM aren't sure Rifkin's idea of a new mittelstand of craftspeople makes sense particularly, but then they have to come from somewhere - the secular decline of jobs in Race Against the Machine makes it seem pretty dire for a lot of jobs and we aren't just talking bond traders and FX dealers. Jobs where you can collect a steady and consistent rent for doing the same thing are on the outer it seems:

For instance, creative writing, arts instruction, and other “soft skills” are not always as amenable to rule-based software or distance learning. We concur with Rhode Island School of Design president John Maeda’s vision that a move from STEM (Science, Technology, Engineering, and Mathematics) to STEAM (adding Arts to the mix) is the right vision for boosting innovation. The technology and systems for education have to be compatible with that vision. In particular, softer skills like leadership, team building, and creativity will be increasingly important. They are the areas least likely to be automated and most in demand in a dynamic, entrepreneurial economy. Conversely, college graduates who seek the traditional type of job, where someone else tells them what to do each day, will find themselves increasingly in competition with machines, which excel at following detailed instructions." - Race Against the Machine

This is a great idea but would kill a lot of sacred cows - like company specific defined benefit pensions and the home mortgage subsidy. TMM like this idea a lot, but getting it done won't be easy and in the interim people can fall through cracks. It also runs counter to the life of anyone except an itinerant investor / hacker / engineer who lives out of a messenger bag with a laptop. So..... if it seems a stretch to us its a BIG stretch for everyone else.

Decouple benefits from jobs to increase flexibility and dynamism. Tying health care and other mandated benefits to jobs makes it harder for people to move to new jobs or to quit and start new businesses. For instance, many a potential entrepreneur has been blocked by the need to maintain health insurance. Denmark and the Netherlands have led the way here. - Race Against the Machine

Eliminate or reduce the massive home mortgage subsidy. This costs over $130 billion per year, which would do much more for growth if allocated to research or education. While home ownership has many laudable benefits, it likely reduces labor mobility and economic flexibility, which conflicts with the economy’s increased need for flexibility. - Race Against the Machine

TMM are coming to the conclusion that the stable outcome here is centralized savings like Australian superannuation, portable healthcare and insurance policies and a fairly healthy degree of redistribution and consumption / sin taxes, much along the lines of Rick Bookstaber here and here. Quoting some of Bookstaber's piece below, just what do you invest in when the world is like this?

Take these two trends (Diminishing Consumption, Diminishing Labor in Production) to their extreme. We are in the year 2025. Because of advances in production technology, much of the path from extracting the required renewable resources through to the production and distribution of most of the items we demand can be accomplished with automated methods overseen by a small cadre of engineers.... The main items we demand, beyond food, clothing and shelter, are the nth generation game systems.... The entertainment industry has disappeared; it is all free, operated with the same open-source ethos that spelled doom for most commercial software enterprises over the past decade. Which also means no more advertising. We pretty much know what we want to buy, and depend on those in our FriendWeb™ (version 4.6) to guide us....If you look hour by hour at what anyone is doing, it is hard to differentiate the super rich from those a few rungs above subsistence level....If you look hour by hour at what anyone is doing, it is hard to differentiate the super rich from those a few rungs above subsistence level....

Perhaps more importantly from a fundamental economic perspective, what does this mean for the Phillips Curve? If labor drops out of COGS or becomes ~5% or less and/or has no pricing power then does the Phillips Curve become a random scatterplot as wages are no longer a key driver of inflation? What does this mean for monetary policy? Is loose policy just about redistribution from fixed to inflation linked receivers and "financial suppression" with ~0 redistribution to those who derive most income from wages? Is Ron Paul vs Paul Krugman really just a pissing contest between two guys on different sides of a vanilla rate swap? TMM don't have the answer but would be fascinated to know what you think.

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"More and more the imagination is where we spend our time. Theres a lot of talk these days about virtual reality. An immersive state of the art technology in which you put on goggles and special clothing and enter special environments and then you are in artificial worlds created by computers and this is thought to be very "woo woo" and far out but in fact, if you're paying attention, we've been living inside virtual realities for about ten thousand years. I mean what is a city but a complete denial of nature. We say no-no. Not trees, mudholes, waterfalls, and all that. Straight lines, laid out roads, class hierarchies reflected in local geography meaning the rich people live here surrounded by the not so rich people all served by the poor people who are so glad they're not the outcast people. So you know urbanization is essentially the first of these impulses where society leaves nature and enters into its own private idaho. And the growth of cities and the growth of the immediacy, I guess you would say, of the urban experience has been a constant of human evolution since urbanization began. Now the only difference that the new technologies offer is that we're gonna do this with light, not mortar, brick, steel, aluminum, and titanium, which are incredibly intractable materials. I mean it's amazing to me. We started with the toughest stuff and of course it costs enormous amounts of blood and treasure to work with such intractable materials. It's always been amazing to me that the largest buildings that human beings ever build are in a sense the first buildings humans ever built because the pyramids of Egypt are enormous even by modern scale, and yet they were among the earliest buildings ever built. In virtual reality the difference between a hundred story building and a ten story building is one zero. What this should tell us is that in the domain of light, the intractability of matter is overcome. And so we are on the brink of a time. We have arrived, we are at the time where the human imagination now need meet no barriers to its intent. And so we are going to find out who we are. We are going to discover what it means to be human when there is no resistance to human will. "

The idea is basically history is ending and humanity is moving into the realm of the imagination. Plenty of jobs to become like the 'architect' in the matrix. Which basically describes a lot of people who currently work in the film/ video game world.

Whatever happens all political attempts to 'create jobs' and 'support growth' will fail because they are inherently regressive as they are drawn from the experience of the past.

All bets are off if the poor of the world decide to revolt and destroy all technology and remake an egalitarian autarky. This is unlikely since "Strictly come dancing" has already captured their imagination.

As a proud Canadian I'd like to point out that with national healthcare and no mortgage interest deductibility, we're ahead of the curve with respect to Race Against the Machine suggestions.(though I'm pretty sure there's a bunch of other countries with same policies). Sorry to get political, but it amazes me that no one in USA on the left has put forth what a relief to small (and large, I guess) business-owners a public option for healthcare would be. To borrow a line of reasoning from supply-siders about 0% corp tax: could public-option healthcare even be self-financing? hahaIncome inequality is definitely going to even worse under this scenario and is probably the chief reason for its increase over the last 25 years; goverment fiscal/monetary policy be damned. 2 Traders & 2 salespeople/analysts sitting at a desk, supported by 4 people in back-office (used to be 6 people in USA, now 4 and in India) making x millions ... front office will find a away to get their 5-10% of that. Same as Coldplay's latest album bringing in x billions requires only division by what, 4 in band + 10 in studio (drop off all those people making the physical cd, selling the cd in a store, marketing the cd, selling separate cd players, etc). Artists in this new scenario will definitely contribute to growing income inequality in this new framework. Technology means its easier, cutting out even more of the middle men (who are all middle-class, 99%-ers) for wealth creators (some are 1%-ers); I could list dozens of examples. I'd love to see a chart of income inequality plotted against service vs manufacturing employment ratio.I would think you're right about inflation, monetary policy becomes even more difficult for a central banker with even more things outside their control (read: commodities) affecting inflation. Inflation seems to just come down to the latest attitude of the Big Red Machine and how much they want to appease their serfs with better jobs. I would hope there would be an eventual breaking point here with respect to other nations rising up against it.Just my two Canadian pennies.

Seriously - this race against the machine is nothing new. What amazes me is that the people living in office cubicles, especially FIRE - have just now discovered it. It has been a force FOREVER. First agriculture, then manufacturing, and now 'office knowledge work'. And if you doubt me just look at what has happened to engineering - from manual drafting & development shop... to CAD assisted drafting... to full CADCAM... and now with solid modeling & simulation & 3D printing - virtual development. Where it took a whole room of draftsmen and techs it now only takes a few who can do more faster and better.

That is happening in every aspect of 'office work' - sales, accounting, supply chain and logisitics - and also in finance, law - etc.

It has been obvious this is where it was heading for twenty or more years. Ever since the first PCs. The issue then as now isn't how to stop it but rather how to share fruits of this productivity. That was the issue with prior revolutions and it is still the issue. There is no way to stop it.

Also, if people think tweaking policy - like mortgage deductions or 'portable' benefits - is going to significantly change the course of events then they are missing the big picture. Those 'solutions' are the equivalent of rearranging the deck chairs on the Titanic. The forces at work are just a lot bigger than that.

The whole way office work is going to be done - including inputs and outputs - is changing as significantly as did agriculture in the first half of the 20th century and manufacturing in the last half of that century.

How it all shakes out I have no idea but one thing is for certain - a lot fewer people will be required in that sector to do what was done by many. How we decide to keep them busy and feed them I have no idea but they will get fed - orderly or disorderly - they will get fed.

I suppose the decay and disappearance of rote jobs is to be expected, but there are jobs that will never be replaced by machines.

Any field where advancement requires abstract thinking and creativity can never be accomplished by electrons alone. (I exclude arts here because while nice, I don't see them adding value to the long term survivability of the human race)

If banking and finance can be replicated by HFT's and risk models does it mean engineers, scientists and doctors will be the next oligarchy?

Asking where the jobs will come from is like a country that is reducing trade protection asking 'where will be my comparative advantage?' It will happen when it happens so long as rigidities brought about by government and trade union rules don't get in the way.

At first view, the white-in-a-bottle test places Rifkin in the tradition of 1970's utopian apologists like Alvin Toffler. The current episode shows how that worked out.

What he (your excerpts, anyway) doesn't address is that production work, for all that it has been retionalized, hasn't actually disappeared but has moved to China. The globalization of labour isn't in the cards for a whole variety of reasons.

His point about the portability of 'rainy day' provisions is correct, however.

re soft skills like writing - I'd suggest that most journalism could be very easily automated. Input today's 'facts' and have the machine assemble an article from a database of phrases and catchwords that reflect the publisher's editorial stance/commercial posture. It's essentially what they do, anyway. No brainer.

Not to worry - bond traders could always milk cows in FarmVille™ (after some time in a re-education camp of course) and FX dealers could work there as landscapers (landscaping?)

Bookstaber is always a good read but I have a sinking suspicion that what's good for the goose is good for the gander, to wit "Futurists always get it wrong because they take the present and multiply it by some number to get the future." Who would have expected that AOL was worth more than Time-Warner, or Facebook more than Conoco-Philips?

Actually Nemo, I'm with you in that the solution is self-evident: we need to go back to the moon and go beyond the limitations inherent to this little blue marble.

You guys are much smarter than me but could this not be the Malthusian theory of population growth playing out? I.e. Resources become too scarce for population in existence and there is a resultant fall in the population?

Get long tinned food and guns...it feels like it's going to be a bumpy ride next few years...I wish I'd listened to my parents and become a doctor!

The impact of the Internet has been incredible. 20 years ago I could not be reading this enlightening blog. What we cannot predict is what is next. What does a world with xxxx look like? I believe the shift is occurring Towards sustainability. We have to play catch up with what has happened in the last 200 years. We literally went from horse carriages to flying at Mach 17 in 100 years. The context of our lives has changed and we're still waging war over resources like reptiles and hoarding.

Put no bounds on automation guys. Even within the fields of medicine, engineering, and hospitality. The only thing that limits us is the size of our imaginations

The huge number of EURUSD longs had been pointed out by many last week so the overnight rally was not a huge shocker. The very low levels of short interest in Spoos is suggesting that the US equity rally is becoming exhausted.

Not too sure what is going on macro-wise, but it does seem as though FX correlation is back. Today was really a straightforward DGDF trade overnight, with all the usual suspects going bid on a sharp EURUSD squeeze, and then selling during the day.

Meanwhile, we have been looking at a few interesting technical levels in specific sector ETFs and single stocks.

Future of Employment :A) building and operating processes that will allow to compensate the exhaustion of cheap natural ressources.B) clean up the environmental mess in EM countriesC) produce the energy needed to do A&B (neguentropy must come from somewhere), without actually going against the target of A&B.

"it is all free, operated with the same open-source ethos that spelled doom for most commercial software enterprises over the past decade."I don't know, Oracle, Google, Facebook, IBM and Apple are all maintaining fantastic margins, even if they use open source. People tend to confuse 'using free code for your commercial venture' with 'giving away your product for free'.

Not much macro today (it is Wednesday after all), but many US banks are missing on revenue and a few are also missing earnings estimates. XLF lagging the index and providing a decent hedging strategy for the week. e.g. Long DVY, Short XLF.

....in which Felix learns to do simple bond math, and tells us all what a clever chap he is.

Haircuts in GGBs have "advanced" to 68% of par, according to this latest report. Presumably they will find a way of ensuring that this is "voluntary" so that CDS are not triggered.

What's interesting to us here is not the Greece end game per se, which seems to have been priced with unerring accuracy by Mr Market, but the knock-on effects. The unpleasant realities of these Greek negotiations are unlikely to lower yields of the bonds of Portugal, which has recently crossed the point of no return. Spain, Italy and their banks are unlikely to benefit from this bucket of cold water.